ACCC cracks down on ‘free range’ advertising

October 20th 2015

As every shopper knows, gone are the days when eggs were simply eggs. On approaching that ever-growing section of the supermarket, we are faced with claims including free-range, organic and cage free barn-laid on the egg cartons, to name but a few. And as shoppers are happy to pay a premium for a hen living as nature intended, it seems only right that the claim on the box be true.

But, in yet another case against an egg producer, the Federal Court recently imposed significant penalties for advertising eggs as “free range” when, in fact, the hens in question were kept inside barns and unable to ever access the outdoor range. The egg producer was ordered to pay a fine of $250,000, publish notices on its website and in major newspapers that its hens were kept in barns “every single day” during the relevant period and maintain an Australian Consumer Law Compliance Program for the next 3 years.

The Australian Consumer Law prohibits the making of false or misleading representations, which clearly includes advertising that goods have a particular quality or had a particular history, when they do not. A court can impose a penalty for breach of the law of up to $1.1 million for a company (or up to $220,000 for an individual). A key factor that a court will take into account in determining the appropriate penalty is deterrence, saying “… a penalty must be fixed with a view to ensuring that the penalty is not such as to be regarded by the offender or others as an acceptable cost of doing business. …”. The Court noted that there has been a disproportionately high number (some might say, an eggstraordinary number) of penalty decisions against “free range” egg producers in recent years, where penalties of between $100,000 and $400,000 have been imposed on corporate producers for false or misleading representations, which suggests that the level of deterrence is not yet sufficiently high.

Another key factor is assessing the appropriate penalty was whether the producer had a corporate culture conducive to compliance with the Australian Consumer Law, as evidenced by educational programmes and corrective measures in response to acknowledged contraventions.

Perhaps more damaging to the producer is the requirement to publish notices about its conduct. In a crowded marketplace, adverse PR could have long-lasting damage on the brand. The text of the notices that the producer was ordered to publish appears here as part of the judgment: http://www.austlii.edu.au/au/cases/cth/FCA/2015/1016.html

(Although given the size of the font compared to the other text on the webpage, visitors might not immediately notice the click-through icon unless they were looking for it. See below.)

The risk of false or misleading advertising is of course relevant to most businesses, not just those in the grocery or FMCG sectors. However, there appears to be some focus from the regulator on quality and provenance claims in the grocery sector. The long-awaited Country of Origin Labelling reforms will go through consultation with stakeholders at the end of the month, and the new system – which may involve the labelling of Australian-made and grown foods by graphic illustration of the percentage weight of Australian ingredients – is due to be implemented by mid-2016.

If you would like to discuss how an educational programme about compliance with the Australian Consumer Law could benefit your business or would like advice in relation to advertising claims generally, please contact Adam Simpson or Clare Young.